Changing Rooms

Distressed Properties?

WILLIAMSBURG — Either more tourists need to flock to the Historic Triangle or more facilities must close to solve the problem.

Carolyn Court Motel was demolished to make room for the High Street development.

The Williamsburg Motor Court will be replaced with a Yankee Candle store.

The Southern Inn is boarded up.

The Tioga is under contract to be sold.

And now, one of the nicest of the dying breed of old-style motor court motels, the Governor Spottswood Motel, is closing after Labor Day.

The culprit is a hotel/motel market in the Historic Triangle where as much as 40 percent of the lodging facilities are at a crisis point.

"We could keep running and cutting back on things, but then we couldn't offer guests the things we want to offer them," said John Laben, longtime general manager of the Governor Spottswood.

It's not just the older lodging properties that are struggling. Hotels across the Historic Triangle have seen declining or flat occupancy rates for the past three years. Now, the number of hotels and motels that are on the verge of collapse is growing. The operators of some of the lodging facilities are facing a conundrum: close now or hang on until 2007?

Hundreds of thousands of tourists will flock to the Historic Triangle to attend Jamestown 2007 events. When that happens, the region's hotels will get a big lift. But will be whether the increased visitation -- and the higher hotel occupancy rates --continue?

Local tourism leaders hope the hundreds of millions of dollars that are being invested in Jamestown sites, events and transportation projects will provide a permanent boost.

That would ease some of the current problems with hotel over-capacity. But that glut might be eased with some bleeding even before then.

Surveys done by Smith Travel Research tell a story of a market that has excess room capacity and a growing number of hotels that are close to folding. About 64 percent of the hotels were at least half full in 2003, but only 55 percent reached that level last year.

Steven Carvell, a professor of finance and assistant dean of the Cornell University's School of Hotel Administration, said the Smith Travel numbers show a market in distress. The half-full properties -- 45 percent of the market -- are all in different degrees of trouble.

"Those hotels are certainly going to be losing money, unless they're very limited service properties," said Carvell.

As the Williamsburg market has suffered a long-term decline in occupancy rates, lodging properties have stayed alive by raising prices. But that has not been an option the last few years, said Doug Pons, general manager of the Quarterpath Inn on York Street.

"There's not a whole lot of room in this market for a further decline in occupancy," said Pons. "Locally, we have seen demand decrease, but we have also seen supply increase."

The Great Wolf Lodge opened in March with 300 rooms and plans to add 100 more. The Williamsburg Lodge just opened 60 new rooms and hundreds more are on the way. All of these rooms haven't made it any easier on struggling rivals.

One of the most troubling statistics is the number of motels whose occupancy has dropped below 45 percent. In 2003, 28 percent of the hotels were under 45 percent occupied. But in 2004, 41 percent of the hotels reached this perilously low level. If the same hotels show up in this category repeatedly, they are done.

"They can only go a few years like that," said Carvell.

As a growing number of hotels sink to the under-40 percent mark, the number of hotels doing well dropped. In 2003, about 30 percent of the hotels were at least 60 percent full, which is usually the break-even point for full-service hotels, said Carvell.

But after 30 percent of the hotels and 35 percent of the rooms hit that mark in 2003, only 20 percent of the facilities and 21 percent of the rooms reached this crucial mark in 2004. The wave of new hotels that were built by the chains in the 1990s, which have higher debt service payments, must hit 60 percent to survive.

Older hotels have an advantage of sorts because more of their building expenses are paid off, but they also must replace aging infrastructure. The older properties also must compete with the name-brand hotels that have rewards programs, amenities and fancy Web sites.

"Newer hotels tend to be more energy-efficient," said Carvell. "They often are designed better, so managing them is less costly. On top of it, many may have stronger brands."

A solid chunk of the York, James City County and Williamsburg market -- about 23 percent -- is hovering between 50-54 percent full. These properties are just barely hanging on, said Carvell. That means that only about 31 percent of the market is healthy at 55 percent and over.

So are local hotels that are struggling to survive right now just hanging on to see if 2007 revives their life expectancy?